UPDATE: US Auto Deal Collapse Sinks Asian Shares, US Dlr

UPDATE: US Auto Deal Collapse Sinks Asian Shares, US Dlr
   (Adds quotes, information, updates/adds market levels)  

SINGAPORE (Dow Jones)--The failure of Senate talks on a $14 billion deal to rescue the U.S. auto industry sent Asian shares lower Friday, while the Japanese yen and government bonds gained on renewed risk aversion.

"It's a very bad sign. U.S. stocks will likely nosedive later," said Yasutoshi Nagai, chief economist at Daiwa Securities SMBC in Tokyo.

The U.S. dollar fell as the internal U.S. problems were brought to the fore, with the greenback sliding to a 13-year low against the Japanese yen, going briefly under Y89, while the yield on the 10-year U.S. Treasury note fell to an all-time low under 2.5%.

Some bourses were off their lows hit just after the news came out, though sentiment remained poor: Japan's Nikkei 225 was down 4.8% amid heavy falls in auto stocks with Korea's Kospi Composite off 3.5%, Hong Kong's Hang Seng Index down 6.9% and Australia's S&P/ASX 200 down 2.4%; India's Sensex was 2.9% lower.

U.S. stock futures were lower in screen trade with Dow Jones Industrial Average futures down 320 points; spreadbetting firms in Europe were calling stocks sharply lower with CMC Markets tipping London's FTSE 100 to fall 154 points and the French CAC-40 176 points.

The future of the U.S. auto sector was thrown into doubt after a marathon meeting of the GOP Senate Conference; Senate Majority Leader Harry Reid acknowledged on the floor of the Senate that lawmakers would be unable to reach agreement.

Several Republican senators pointed the finger at the United Auto Workers labor union as being unwilling to accept reductions in employee compensation.

This could "affect millions of people in the U.S., including those working for the auto suppliers. It's quite important in terms of the macro economy," said a trader at a Japanese brokerage.

It was unclear what would happen next, but any fresh attempt to broker a deal was looking less likely until after Christmas, setting the stage for a bleak time in markets in the interim - two of Detroit's Big Three have said they wouldn't be able to last the year without federal aid; investors had already been bracing for downbeat news from consumers in the U.S. over the key holiday period.

That would portend more bad news for Asia - given its reliance on exports of technology and other goods to the U.S. - after a week of poor data from the region on trade and retail demand.

Some analysts though expected a bailout would eventually be passed; "we could have a rerun of TARP (the Troubled Assets Relief Plan), where fallout on Wall Street puts more pressure on Senators to pass something," said AMP Capital Investors chief economist Shane Oliver, in Australia.

For now, auto stocks were sliding in Japan with Toyota down 9.1%, Honda Motor off 12% and Nissan Motor down 11%; parts makers were stumbling with Denso down 12% and Calsonia Kansei off 12%.

In Korea, Hyundai Motor was down 6.7% with Kia Motors off 4.7% while India's Tata Motors was off 4.9% and Mahindra & Mahindra 4.7% lower.

Materials stocks fell in Australia on waning commodity prices with BHP Billiton down 4.7% and Rio Tinto off 9.5%.

Recent big gainers were giving back ground in Singapore with the Straits Times Index falling 3.8%; Neptune Orient Lines was down 9.9% and Cosco 9.6% lower.

China's Shanghai Composite was down 2.8% with Indonesian shares falling 4.0%, Philippine shares down 2.0% and Taiwan's market down 4.6%; New Zealand shares fell 2.0%.

Much of the near-term outlook for Asian shares depended on how Wall Street behaved later Friday, said analysts.

"We will reflect any U.S. downside on Monday, but we have already sold so much," said Daiwa Securities fund manager David Li in Taiwan; "there may be some bargain hunting after that, since most investors don't lack money."

In currency markets, the U.S. dollar was at Y89.75, down from Y91.16 late in New York on Thursday, having fallen as far as Y88.22; the euro up against the dollar at $1.3356, from an early Asian low of $1.3304 and at Y119.83, from Y122.73 in New York.

The big gains in the Japanese yen spurred some fresh talk about the chance that authorities there could intervene to push it back down, with Finance Minister Shoichi Nakagawa saying: "We are closely watching foreign exchange market moves and of course if the moves become more volatile, we are going to consider what we should do."

Still, one bank trader in Japan said intervention at current levels was unlikely; "it would probably take a rapid fall of 10 yen or so to budge the MOF from its hands-off stance," given the U.S. dollar was falling against many currencies, not just the yen.

The British pound and Swiss franc were both sharply higher against the greenback, though the Australian and New Zealand dollars were dropping as a play on risk aversion; "this is not an environment where the Australian dollar can be expected to be strong," said ANZ strategist Tony Morriss.

U.S. Treasurys were catching a bid with the 10-year yield down about 13 basis points in the wake of the auto news, to 2.49%; Daiwa Securities SMBC's Nagai said the yield may yet fall toward 2.0%.

Lead Japanese government bond futures were up 0.98 at 139.63, having briefly touched 139.78.

The cost of credit protection on Asia's U.S. dollar bonds jumped; "it's not good for credit in general, or Asian credit, because of the risk of destabilization in the U.S. economy," said a Hong Kong-based fund manager.

The Markit iTraxx Asia ex-Japan investment-grade five-year credit default swaps index was quoted at 390-420 basis points after trading at 380 basis points earlier.

Nymex front-month crude was down $2.29 at $45.69 a barrel on Globex.

Metals were also getting hit with LME three-month copper down $200 from Thursday's kerb at $3,120 a ton; spot gold was down $3.75 at $815.95 a troy ounce.

-By Rosalind Mathieson, Dow Jones Newswires; +65-6415-4140; Rosalind.Mathieson@dowjones.com

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(END) Dow Jones Newswires

December 12, 2008 00:49 ET (05:49 GMT)

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